San Diego Estate Planning Lawyer Blog
San Diego taxpayers pay both the federal government, IRS, and the California government, FTB, and many taxpayers become in arrear in their payments and often are placed in collection action by the IRS. As such, offers to compromise and companies which promise assistance in settling these claims are numerous. Be sure to check with the San Diego Better Business Bureau before paying for any of these services.
The Internal Revenue Service has published new regulations that will make it easier for taxpayers to negotiate settlements of their tax debts. The regulations expand the “offer in compromise” program, under which settlements can be reached with taxpayers who cannot pay their entire tax debts.
Under the old policies, the IRS could accept a taxpayer’s offer of settlement only if there was a doubt about whether the taxpayer was liable or the debt could ever be collected. These bases for compromise remain in effect, but the new regulations add flexibility, making the IRS decision to accept or reject a compromise offer dependent on the taxpayer’s particular circumstances. The bottom line is that a taxpayer is eligible for a compromise where collection of the entire tax debt would create economic hardship or where there are compelling public policy or equity considerations favoring a settlement.
It may be evidence of hardship if a taxpayer cannot: (1) earn a living due to a long-term illness or disability, and it is foreseeable that resources will be exhausted; (2) pay basic living expenses if assets are liquidated to pay the tax debt; or (3) borrow against equity in assets, and seizure or sale could make it difficult for the IRS to collect the tax debt.
Even with loosened-up rules, the IRS will only come so far to meet a taxpayer in a settlement. The new rules do not allow a compromise that “would undermine compliance with the tax laws.” The burden is on the taxpayer to make the case for compromise. Absent exceptional circumstances, the IRS will presume that an uncompromising application of the tax laws gives a fair and equitable result.
If you have any questions about offers and compromise, please feel free to e mail our firm of Law Office of Scott C. Soady, A Professional Corporation, LLP.